The Federal Trade Commission today issued a Notice of Proposed Rulemaking (NPRM) seeking public comment on proposed rule revisions that would amend Parts 3 and 4 of the agency’s Rules of Practice, with the goal of further expediting its adjudicative proceedings, improving the quality of adjudicative decision-making, and clarifying the respective roles of the Administrative Law Judge (ALJ) and the Commission in Part 3 proceedings. The FTC currently is seeking public comment on the proposed amendments as part of the rulemaking process.

ABSTRACT: In its submission to the recent OECD Roundtable on Bundled and Loyalty
Discounts and Rebates (the "OECD Roundtable on rebates"), Korea
observed that "loyalty discounts are getting growing attention both
academically and practically" and that "this issue was now on top of
the agendas of many seminars and workshops on competition law, with
many papers devoted to the theme." It then explained that this trend
was attributable to the fact that loyalty discounts has become an
important marketing tool, which raised several competition issues in
the process.

While discounts or rebates - this paper will
generally refer to rebates - have been used by businesses for centuries
to sell greater amounts of products to customers, it is true that the
compatibility of rebates with competition law has become a particularly
acute issue in recent years. There are several reasons for this. These
last few years have witnessed several major court judgments in the
European Union (the "EU") and the United States (the "US"), which have
been abundantly commented upon, hence explaining the large number of
papers and seminars devoted to the subject. But, more generally, the
assessment of rebates seems to be one of the most unsettled areas of
competition law.

In the EU, for instance, the decisional
practice of the European Commission and the case-law of the Community
courts have been harshly criticized as being unnecessarily strict,
following a form-based approach that is poorly in line with economics.
While these decisions have been sometimes misinterpreted, it is true
that they were generally unhelpful in large part due to the fact they
focused on the wrong questions. As a response to such criticisms (and
more general criticisms about the manner in which Article 82 EC was
implemented), the European Commission published in December 2005 a
Discussion Paper, which promotes an effects-based approach to the
assessment of rebates. While US courts have generally applied an
effects-based approach to the assessment of rebates, the case-law is
still unsettled, notably in the area of bundled rebates. This certainly
led Korea to conclude its OECD submission by stating that "even in
jurisdictions such as the US or the EU which have accumulated a
considerable amount of enforcement experience regarding loyalty
discounting often do not have a clear analysis method regarding this
practice."

While this observation is in many ways true, there
are, however, encouraging signs that EU and US law are converging, and
will increasingly do so, around a set of sound legal and economic
principles to assess guidelines. Both the EU and the US contributions
to the recent OECD Roundtable on rebates emphasize the importance of
relying on objective economic criteria for the assessment of rebates.
While the views of the European Commission and the US antitrust
agencies still diverge on some issues, there seems to be a consensus
that a price-cost test should play an important role in screening
rebates that can (i.e., are able to) foreclose a dominant firms' rivals
to supply one or several customers. There is also a consensus that such
tests should only be a component of a broader test that should also
determine whether the rebates in question substantially foreclose the
relevant market and, in such cases, whether the foreclosure effect can
be compensated by efficiencies. While price-cost tests help determining
whether the rebates granted can have the effect of foreclosing
competitors because the dominant firm's customers cannot turn to
alternative suppliers without incurring substantial switching costs, it
should also be demonstrated that these customers represent a
substantial share of the market to which equally efficient rivals can
turn, depriving them of the possibility to profitably enter and/or
expand. Moreover, both EU and US law recognize the importance of taking
into account in the assessment process the various efficiencies that
can be generated by loyalty rebates and the extent to which they can
counterbalance foreclosure effects.

Against this background,
this paper aims at providing a framework - based on sound legal and
economic principles - designed to help competition authorities and
courts to separate pro-competitive loyalty rebates from
anti-competitive ones. It starts with the widely acknowledged view that
in the vast majority of cases dominant firms grant rebates to their
customers for legitimate reasons, i.e. not to exclude competitors but
to engage in legitimate forms of price competition and to realize a
variety of efficiencies, as discussed below. In fact, rebates are not
only used by dominant firms, but also by firms without any market power
and thus unable to exclude competitors. This paper also takes as a
starting point the view - which is recognized in the vast majority of
antitrust regimes - that the goal of competition law is not the
protection of competitors, but the protection of competition. Hence,
rebates that cause less efficient firms to lose market share should not
be banned as they lack anti-competitive effects. As will be seen below,
these rebates enhance consumer welfare as they ensure that customers
are served by the most efficient firms and benefit from their more
competitive offers.

ABSTRACT: Previous empirical assessments of the effectiveness of structural
merger remedies have focused mainly on the subsequent viability of the
divested assets. Here, we take a different approach by examining how
competitive are the market structures which result from the
divestments. We employ a tightly specified sample of markets in which
the European Commission (EC) has imposed structural merger remedies. It
has two key features: (i) it includes all mergers in which the EC
appears to have seriously considered, simultaneously, the possibility
of collective dominance, as well as single dominance; (ii) in a
previous paper, for the same sample, we estimated a model which proved
very successful in predicting the Commission's merger decisions, in
terms of the market shares of the leading firms. The former allows us
to explore the choices between alternative theories of harm, and the
latter provides a yardstick for evaluating whether markets are
competitive or not - at least in the eyes of the Commission.

Running
the hypothetical post-remedy market shares through the model, we can
predict whether the EC would have judged the markets concerned to be
competitive, had they been the result of a merger rather than a remedy.
We find that a significant proportion were not competitive in this
sense. One explanation is that the EC has simply been inconsistent -
using different criteria for assessing remedies from those for
assessing the mergers in the first place. However, a more sympathetic -
and in our opinion, more likely - explanation is that the Commission is
severely constrained by the pre-merger market structures in many
markets. We show that, typically, divestment remedies return the market
to the same structure as existed before the proposed merger. Indeed,
one can argue that any competition authority should never do more than
this. Crucially, however, we find that this pre-merger structure is
often itself not competitive. We also observe an analogous picture in a
number of markets where the Commission chose not to intervene: while
the post-merger structure was not competitive, nor was the pre-merger
structure. In those cases, however, the Commission preferred the former
to the latter. In effect, in both scenarios, the EC was faced with a
no-win decision.

This immediately raises a follow-up question:
why did the EC intervene for some, but not for others - given that in
all these cases, some sort of anticompetitive structure would prevail?
We show that, in this sample at least, the answer is often tied to the
prospective rank of the merged firm post-merger. In particular, in
those markets where the merged firm would not be the largest
post-merger, we find a reluctance to intervene even where the resulting
market structure is likely to be conducive to collective dominance. We
explain this by a willingness to tolerate an outcome which may be
conducive to tacit collusion if the alternative is the possibility of
an enhanced position of single dominance by the market leader.

Finally,
because the sample is confined to cases brought under the 'old' EC
Merger Regulation, we go on to consider how, if at all, these
conclusions require qualification following the 2004 revisions, which,
amongst other things, made interventions for non-coordinated behaviour
possible without requiring that the merged firm be a dominant market
leader. Our main conclusions here are that the Commission appears to
have been less inclined to intervene in general, but particularly for
Collective Dominance (or 'coordinated effects' as it is now known in
Europe as well as the US.) Moreover, perhaps contrary to expectation,
where the merged firm is #2, the Commission has to date rarely made a
unilateral effects decision and never made a coordinated effects
decision.

ABSTRACT: E. Hoffmann-La Roche Ltd. v. Empagran S.A. concerned a private
antitrust suit for damages against a global vitamins cartel. The
central issue in the litigation was whether foreign plaintiffs injured
by the cartel's conduct abroad could bring suit in U.S. court, an issue
that was ultimately resolved in the negative. We take a welfarist
perspective on this issue and inquire whether optimal deterrence
requires U.S. courts to take subject matter jurisdiction under U.S. law
for claims such as those in Empagran. Our analysis considers, in
particular, the arguments of various economist amici in favor of
jurisdiction and arguments of the U.S. and foreign government amici
against jurisdiction. We explain why the issue is difficult to resolve,
and identify several economic concerns that the amici do not address,
which may counsel against jurisdiction. We also analyze the legal
standard enunciated by the Supreme Court and applied on remand by the
D.C. Circuit, and we argue that its focus on independent harms and
proximate causation is problematic and does not provide an adequate
economic foundation for resolving the underlying legal issues.

ABSTRACT: A firm's market power is embodied in its cash flows. Economic profits,
the excess return on investment over the cost of capital, can be
measured using the discounted cash flow approach for firm valuation
developed by Miller and Modigliani. The information required to provide
a dynamic estimate of economic profits related to the operations of a
firm in a given market is contained in its transaction records. When a
firm's transaction records are unavailable, they can be derived, in
part, by adjusting and recategorizing the publicly available
information contained in its financial accounting records. Although
accounting measures differ fundamentally from economic profits, the
published accounting statements also contain transaction information
since they are a consolidated summary of a firm's transaction records.
The degree of a firm's market power can be measured by its economic
profits and economic rate of return. Adjustments to the firm's economic
profits may be required to remove sources of profit not associated with
the exercise of market power, e.g., exogenous increases in the market
value of its assets.

In what looks to be a an excellent event, the American Enterprise Institute's 2008 Gauer Distinguished Lecture will be given by the Honorable Douglas H. Ginsburg, U.S. Court of Appeals for the District of Columbia Circuit. The lecture will be held on Tuesday, September 23, 2008 with the lecture titled "Continuity and Change in the Supreme Court: Antitrust as a Case Study."

ABSTRACT: This paper focuses on the question of whether the task of distributing
the welfare between producers and consumers is in the domain or
jurisprudence of courts or antitrust agencies. Indeed, these
foundations are far away from the understanding introduced by Chicago
school when the matter in hand is about price discrimination. But
contrary to this, public choice framework outlines the allocation of
tasks about distributing the welfare by means of macro economic
measures such as taxing. So it is paradoxical to accept certain kinds
of price discrimination are illegal even if they were proved to
increase efficiency and total welfare.

In this paper, I give the
definition of price discrimination and tying by using economic
approach. Types of tying practices which is not deemed to be price
discrimination are also presented. In addition the case law about tying
as price discrimination is a part of the study. And essentially,
antitrust policy choices in order to distinguish tying arrangements
which are efficient and social welfare practices are discussed.

ABSTRACT: This paper investigates several competition policy questions related to
standard-setting organizations (SSOs). Are compatibility standards
agreed upon by competitors generally in the public interest? Should
competition policy generally favor patent-holders who practice their
patents against innovation specialists who do not? Should SSOs be
encouraged - or even required - to conduct auctions among
patent-holders before standards are set in order to determine
post-standard royalty rates? Alternatively, should antitrust policy
allow or encourage collective negotiation of royalty rates?

The WSJ has an article in today's paper on a DOJ investigation into egg producers and California tomato processors. Collusion in agriculture is not surprising given high concentration in the industry and low levels of substitutability of products, among other reasons.

One big takeaway of agriculture issues in antitrust is that competition policy affects the way firms in agricultural production behave as much as how they relate to other sectors in the economy, and may prove to be an important tool in helping develop a dynamic agricultural sector.

ABSTRACT: When a customer uses a credit card, the merchant pays a small percentage of
the purchase price to the bank that issued the card. This cost of card
acceptance, known as the interchange fee, adds up to big money . . . really big.
This year, the credit card companies anticipate that interchange fees will total
$48 billion, an increase of nearly 300% since 2001. Merchants can do little to
influence these fees, because credit cards are critical to their businesses and
the systems' rules prohibit surcharging.

In recent years, commentators
with growing levels of confidence have suggested that this anticompetitive
rumble could be quelled if merchants had the power to surcharge card
transactions. And now, fed up with the astonishing increases in interchange
fees, merchants have filed more than 50 antitrust suits (now consolidated)
against the credit card companies challenging the rules prohibiting surcharging
and seeking the power to do it.

This Article contends that permitting
surcharging would likely do more harm than good. Under well established economic
principles, charging merchants more than necessary to cover the cost of
providing card-acceptance services can actually enable consumers to internalize
all of the benefits (those flowing to both consumers and merchants) of card use.
Just as newspapers efficiently charge readers much less than the cost of
producing and delivering the morning paper, and advertisers pay much more than
the cost of placing an advertisement, efficient credit card pricing requires
that merchants pay more than the direct cost of service, and cardholders pay
less. In such a two-sided market, shielding cardholders from merchant acceptance
costs through rules prohibiting surcharging serves the pro-competitive purpose
of facilitating efficient pricing.

Today, unfortunately, card systems
with market power go too far and charge merchants an additional, anticompetitive
increment, above what is necessary to an efficient pricing policy. Card issuers
may then retain some revenue as supra-competitive profit and wastefully compete
some away in pursuit of highly profitable cardholders. Although surcharging
potentially could combat this market power, it would be an uncertain and risky
response, because merchants could not precisely tailor their schemes to undo
only the anticompetitive overcharge. Moreover, retailers in competitive markets
would find surcharging difficult because of the costs, particularly in terms of
customer resistance. Merchants with market power probably could institute
surcharges, but would be unlikely to channel all of the savings to their
customers. In sum, the competitive benefits of permitting surcharging are more
uncertain, and the losses in terms of consumer welfare more likely, than
commentators have suggested. Whether consumers would benefit from the resulting
disruption to the current market equilibrium would be, at best, anybody's guess.

This Article proposes an alternative, less risky response that would
focus directly on card system market power by relaxing the rule that requires
merchants to accept cards from every issuer on the network (the
"honor-all-cards" rule). Today, large banks issuing Visa and MasterCard cards
effectively set their interchange fees collectively. By forcing these banks to
compete for merchants, as American Express and Discover do now, this approach
would stimulate competition and move card-acceptance costs toward the efficient
level, without a significant risk of inefficiently disrupting the market.

ABSTRACT: On April 30, 2008, the UK Competition Commission published the final
report of its two year investigation into the supply of groceries in
the UK. This article gives a UK perspective on some of the issues
covered in the recent Whole Foods decision by the U.S. Court
of Appeals for the District of Columbia. It draws out the key market
definition findings in the CC’s investigation, with a particular focus
on the CC’s decisions and analysis with respect to those grocery
retailers offering a somewhat differentiated product from the UK’s
mainstream grocery retailers.

The CC’s investigation into the UK
groceries sector was a market investigation under the provisions of the
Enterprise Act 2002, which requires the CC to decide under s.134(1)
whether “any feature … of each relevant market prevents, restricts, or
distorts competition in connection with the supply or acquisition of
any goods or services in the UK or a part of the UK.” Where the CC
identifies such a feature there is said to be an ‘adverse effect on
competition’, and the CC then decides on the action, if any, that
should be taken by itself or by others to remedy, mitigate, or prevent
the AEC.

Defining the product and geographic markets in which
grocery stores compete was a key building block for the CC’s groceries
market investigation, providing the framework for the CC’s analysis of
competition among grocery retailers. The CC’s guidelines state that
“the Commission does not regard market definition as an end in itself,
but rather as a framework within which to analyze the effects of market
features.” Nevertheless, in this case the CC’s market definition
findings perhaps have greater significance in that they are likely to
influence future Office of Fair Trading inquiries in the sector.

ABSTRACT: The worldâs audit oligopoly is composed of four accounting firms: PricewaterhouseCoopers, KPMG, Ernst & Young, and Deloitte Touche Komatsu (the Big 4). These firms are in a strong position in that they audit the financial statements of nearly all the global public companies in the world and, arguably, are the only audit firms able to do so. They are huge, privately-owned, international networks with robust revenues, vast resources, and expertise. Yet they are heavily regulated by governments, and they are subject to massive lawsuits when investors and creditors suffer large losses due to fraud or error; these are their major weaknesses. Since the dual shocks of the collapse of Arthur Andersen (reducing the Big 5 to 4) and the enactment of stringent regulations by the U.S. Congress in 2002 in reaction to corporate accounting scandals, there is great concern in the financial community that another company in the oligopoly could be forced out of business, further reducing the choice of auditors for multinational corporations and causing disruptions in the marketplace.

This paper reviews the effects of concentration on competition in the market for audits of major multinational corporations, as well as the effects on audit fees, audit quality, and the regulatory environment. It observes that competition is far less intense than in earlier years and that regulatory authorities are reluctant to take severe disciplinary actions against audit firms, but that the industry remains vulnerable to legal challenge. Global public companies will continue to face limited choice of auditors until smaller competitors or new competitors can build viable networks and reputations for high quality audits. The paper examines barriers to market entry and comments on proposals to promote greater competition, including liability limitations. It also reports on anticompetitive practices of major accounting firms in the past and the need for regulatory authorities to maintain constant vigilance to avoid any recurrence. Finally, responding to the question posed in the title, the paper concludes that considering the industryâs market dominance, the relaxation of punitive actions by regulatory authorities and the availability of some forms of liability limitation, the audit industry may not be the ideal candidate for weakest oligopoly in the world.

ABSTRACT: As in many other antitrust cases, the delineation of the relevant
product market was the critical issue in the Whole Foods and Wild Oats
merger. Setting the market boundaries containing the set of products in
direct competition with those of the merging parties is a very
difficult task in the presence of product differentiation. The
varieties produced by each of the firms differ in several dimensions.

Two
varieties at the opposite extremes of the differentiation dimension may
end up as poor substitutes for each other. In practice, it is very
difficult to draw a line in the middle of these two extremes that
objectively separates the two product markets.

In an attempt to
offer an objective criterion for market definition, the Horizontal
Merger Guidelines issued by the U.S. Department of Justice and the
Federal Trade Commission (“Guidelines”) state that the antitrust
agencies must delineate the product market as a group of products such
that, if produced by a hypothetical profit-maximizing monopolist, would
be able to profitably impose at least a small but significant and
nontransitory increase in price. This approach has been known as the
SSNIP test. Although theoretically appealing, in practice a proper
assessment of the SSNIP test would be equivalent to a full quantitative
evaluation of the merger.

ABSTRACT: This paper analyzes a price squeeze case in the provision of
telecommunication services to the Italian Public Administration, in
which Telecom Italia, the incumbent company, was condemned for bidding
below costs. We develop the analysis of the case highlighting the
possible anticompetitive story and the alternative competitive
explanation. We then construct a quantitative imputation test to verify
the alleged anticompetitive behavior. The methodological issues and the
assumptions needed to implement the test are discussed in detail,
showing their link to a precise test of the anticompetitive story. We
discuss the reasons why the Antitrust Authority and our views diverge
over the evaluation of Telecom Italia bidding. The role of judicial
review in cases with complex economic arguments is discussed.